Landmark Question: What`s In It For The Owner?

July 24, 1992|By Patrick T. Reardon, Urban affairs writer.

Without question, the Berghoff restaurant is a Chicago landmark.

Its German food, bustling waiters, and turn-of-the-century ambience have made the Berghoff a fixture in the Loop for 94 years and a mecca for thousands of tourists, shoppers and office workers every day.

But last year when some city officials tried to make that landmark status official, the Berghoff family disagreed. And its reason was as simple as the difference between $800,000 and $7 million.

The lower figure is what the two Berghoff buildings at 15-27 W. Adams St. are worth, according to a real estate expert hired by the family. The higher number is what the land would be worth if the structures were demolished and replaced by a retail development.

So, despite the historic and architectural importance of the two buildings, which were constructed in the year after the Great Chicago Fire of 1871, a City Council committee voted 3-1 against landmark designation.

The case of the Berghoff points up the economic obstacles that preservationists and sympathetic city officials face in trying to protect Chicago`s treasury of important structures from the wrecking ball.

To overcome some of those obstacles, a city task force has proposed a set of recommendations, primarily tax breaks, to ease the economic pain of landmark designation.

Those recommendations, prepared over the last two years, were submitted Thursday to the Chicago Plan Commission, one of three sponsors of the task force. The others were the Chicago Commission on Landmarks and the Landmarks Preservation Council of Illinois.

Both commissions are expected to review the proposals in the coming months.

In many ways, Chicago, internationally recognized for the beauty and innovation of its architecture, is a living museum in which people live and labor inside and around works of art.

But the people who own these important buildings aren`t museum directors. They want to make a profit, and they want to have the flexibility to use, renovate or replace their structures to take advantage of changes in the real estate market.

The problem is that landmark designation, to a great extent, ties an owner`s hands. The building can`t be demolished, and its facade can`t be changed without permission from city landmark officials.

If ultimately approved, the recommendations from the task force would not eliminate all of the financial restraints that landmark designation brings. For example, they probably would not be enough to persuade the Berghoff family that landmark status would be good for their restaurant because demolition would still be prohibited. But, according to Vincent Michael of the Landmarks Preservation Council, the proposals would ``level the playing field`` to some extent in the competition between landmark structures and newer buildings.

``There won`t be a mad rush to get landmark status, but owners will find it more possible to compete,`` Michael said.

In the competition for tenants, older buildings operate at a distinct disadvantage, according to a task force report.

For one thing, structures that are 50 years old or older earn about 80 percent as much income as buildings that are less than a decade old, the report said.

Another problem is that when owners of an older building go to a lending institution for a rehabilitation loan, they are required to set aside contingency funds of as much as 40 percent of the estimated cost of the project.

In contrast, the contingency requirement for newer construction is typically 10 percent.

On top of this, a task force survey of 50 developers who had completed preservation projects ``revealed that 70 percent incurred extra costs`` in architectural and legal fees, as well as in additional construction time, because of the need to meet federal guidelines for such projects.

Finally, an older building can`t take advantage of generous density allowances that are now permitted to developers. Those density allowances drive up the value of new buildings, which in turn drive up the assessed valuation of other structures in the area.

So an old building in the Loop is taxed at a high rate because of the high densities permitted, even though its owner can`t take advantage of those density allowances without tearing down the structure.

``The density thing is the major thing that threatens landmarks,``

Michael said.

To offset such problems, the task force recommended two tax breaks for landmark owners.

Under one, the Cook County zoning ordinance would be amended to permit a city landmark to receive a special reduction on its property assessment.

Instead of being assessed at 38 percent of fair-market value like other commercial property, it would be assessed at 16 percent for eight years, a signficant savings. Then for the next four years, it would be assessed at 30 percent.